Are Active Managers a Drag on Investor Wealth?
Evidence from an Option-Based Estimation

Lancaster University Management School; New York University - Stern School of Business

Date Written: October 29, 2015

Abstract

We estimate an option-based value of a fund manager’s conditional market timing skill in bear market states. We combine this value with alpha based estimates of selection skill to give an overall valuation of active management. At the aggregate level, we estimate that the benefit arising from the option value of active fund management in bad times can be large enough to cover its unconditional overall cost. Our analysis suggests that by taking account of the option premium delivered by managers’ bear market timing skills, the longstanding mutual fund underperformance puzzle could be largely rationalized.

SSRN Rankings

About SSRN

We use cookies to help provide and enhance our service and tailor content.By continuing, you agree to the use of cookies. To learn more, visit our Cookies page.
This page was processed by aws-apollo2 in 0.422 seconds